Mobile apps for the iPhone and Android platforms are all the rage these days, so much so that you might get the impression that everyone owns a smart phone. Not so, says CNN, which recently reported that 70 to 75 percent of mobile users in the United States, and up to 95% around the world, still use plain vanilla cell phones.

That fact has not been lost on social media giant Facebook, which last month confirmed that it is acquiring the Israeli startup Snaptu for an estimated $60 million to $70 million.

Snaptu develops applications that run Facebook – as well as Twitter, Picasa and AccuWeather, among others – on what are known as “feature phones.” These devices are smarter than the basic models of 10 years ago, but a few IQ points below iPhones. As feature phones account for the lion’s share of units sold – Snaptu says its apps run on more than 2,500 types of devices – Facebook decided to snap up, so to speak, the leading player in the feature phone field.

It’s not hard to fathom Facebook’s interest in mobile phones: The ability to track a user’s location means Facebook and other web services can offer more targeted geo-specific ads. About 40% of Facebook’s 500 million users connect to the social network via their mobile phones.

Big business potential

Paying such a high premium for Snaptu might seem shortsighted – after all, isn’t the mobile market steadily migrating to smarter devices? Not so fast. According to the research firm IDC, in 2010, 78.5% of all handsets sold were simpler models. And though by 2014 that share will fall to 60%, that’s still a majority that can’t be ignored.

Snaptu has been around since 2007 and has raised a tidy sum of cash – $6 million from heavyweight Israeli VCs Sequoia Capital and Carmel Ventures. The Facebook deal represents a 10-fold return on investment.

Two months prior to the acquisition, Snaptu’s founders told the Israeli economic newspaper Calcalist that they weren’t looking to sell … but at the same time they weren’t ruling out the possibility.

“Will we sell the company on the way or not?” CEO Ran Makavy mused. “It depends. If we get a very attractive offer and can’t resist the temptation, we’ll be happy to. But we are not building a company in order to sell it. The business potential here is so big that it would be wrong not to have high expectations.”

Facebook and Snaptu had already been working together – Snaptu’s app for Facebook was launched earlier in 2011 with Facebook’s blessing. If that was the initial engagement, Snaptu and Facebook have now formally tied the knot and, according to a corporate press release, Snaptu says the marriage will go even further, providing an R&D base for Facebook in Israel.

Potential risk

But there is a potential dark side. Roy Goldenberg, writing on the Israeli business news website Globes, cautions that Facebook could just as easily shut the Israeli operation down.

“Facebook has made 11 acquisitions since 2007, mostly in the past year, and almost none of the acquired companies’ services survived,” Goldenberg writes, citing several examples including the Hot Potatoes site that Facebook bought for $10 million and promptly shuttered. Clicking “Support” on the Hot Potatoes website reveals an ominous announcement: “Please do not contact us for technical support. We will simply ignore your emails.”

Speaking to Globes, CEO Makavy tried to calm his staff’s fears. “Ten employees [probably technical staff] will move to Facebook’s headquarters in the US, and some will stay in Israel. There has been no final decision about sending anyone home,” he said.

But the fate of Snaptu’s marketing staff is anything but assured. Could Snaptu’s 30 million users wake up one day and discover their favorite service has become its own hot potato?

In the meantime, the partners are remaining upbeat. Snaptu’s blog says the acquisition by Facebook “offered the best opportunity to keep accelerating the pace of our product development.” And according to Facebook, “Snaptu’s team and technology will enable us to deliver an even better mobile experience on feature phones more quickly.”

The company that may have the most to fear might be LinkedIn which, just a week before, struck an almost identical deal with Snaptu to bring its web service to feature phones. While Facebook and LinkedIn target different demographics (LinkedIn is primarily business-focused), the two nevertheless compete for many of the same users.

And what will be with Twitter? Snaptu has an app for the micro-blogging service. Facebook has been aggressively targeting Twitter’s functionality and in the past months launched its own highly Twitter-ish “most recent” live updating feed. Shutting down Snaptu’s competing app would seem in line with Facebook’s overall strategy, according to Globes.

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Brian has been a journalist and high-tech entrepreneur for over 20 years. He combines this expertise for ISRAEL21c as he writes about hot new local startups, pharmaceutical advances, scientific discoveries, culture, the arts and daily life in Israel. He loves hiking the country with his family (and blogging about it). Originally from California, he lives in Jerusalem with his wife and three children.